Photo by ELM Property
This month, I’m talking about what a bridge to term product is, and how it can help you with refurbishment projects and conversions to HMOs.
I’ve had quite a few calls from new clients recently where they have taken a bridge out with another broker and the exit hasn’t been spoken about so now they’re ready to refinance, they want to know their options. This really isn’t the best way about it, and we will always start the conversation (before you have bought your property!) with your exit plans and what is available – then we work back from that.
What is a bridge to term?
Basically, it’s using the same lender for both the bridge and then the term mortgage afterwards. We have a few lenders who do it, and each one has a slightly different method. Who we use would depend on the type of property you have and the works that need to be carried out.
The benefits of using the same lender for the bridge and term cover a few things; it lowers your risk, lowers your cost overall, and gives you more certainty over the project.
The benefits from a risk perspective
When you have the valuation carried out initially (before you buy the property), we give the valuer the schedule and costings of the works and they will give us a GDV on that basis. That will help you confirm that the works are worthwhile and profitable for you, and you make adjustments if necessary. We can then use the same valuer for the term mortgage afterwards, so you have more certainty over the figure you will be using to refinance.
When you buy a property using bridging it will go through their solicitor’s legal process. This means that they have checked the title, and they are happy with the security. This then gives you the security that they will lend on it for the term mortgage. Different bridging companies have different appetites to lend, and if you use cash to buy then there’s been no lender’s legal checks!
The lender’s underwriting team will also look at your case and ensure that or fits with them for the bridge as well as the term. This means that any location issues, like being close to commercial property for example, have been looked at. You have the security that they will lend on the term. We’ve had a few cases recently where the criteria had changed while the client was on the bridge, but because the lender already had the security they allowed an exception on the refinance. This enabled the client to refinance seamlessly, instead of having an issue refinancing elsewhere – it was commercial and semi commercial property so the rules had changed for most lenders!
Advantages from a cost perspective
The lender we use will be a bank, so they are generally more consistent with their costings. You will get an AIP which they don’t change (unless there is a serious valuation problem!) and they work from a fee scale for valuations and legals to keep your costs down. They do what they say they’ll do, and often we don’t see that with stand alone bridging companies!
Using the same lender can mean a reduction on arrangement fees, legals and valuation costs. Each lender has their own version of the products, so it varies depending on who we go to as to what savings you get. It can be a significant reduction in costs on the refinance though.
Reducing the legal requirements (as the lender already has the security) saves money, but also time. Paying a couple of months less on your bridging is a good cost saving too!
Using the same valuer often saves costs too, as we can use a reinspection rather than a full new valuation. This gives you more security around the GDV figure too, as it should match up with wish we got initially.
As always, please contact me here if you have anything you want to run through.
About the Author:
Ellie Broadhurst is a specialist mortgage broker working at Baya Financial in partnership with The HMO Roadmap. She works with HMO property investors throughout their journey, from clients starting on their first project through to experienced portfolio landlords and developers. Learn more about Ellie here.